Shares

Presented by Ankur Srivastava IBMR-IBS, Bangalore

A share in the share capital of a company, and includes stock except where a distinction between stock and share is expressed or implied. In other words, a share in a company is one of the units in which the total capital of the company is divided.

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Example: If the capital of a company is 10000 and is divided into 1000 units of Rs10 each, each unit of Rs.10 shall be called a share of the company.

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SHARES

 SHARES PREFERENCE

EQUITY

CUMULATIVE

DEFERRED SHARES

NON-CUMULATIVE

PARTICIPATING OR NON-PARTICIPATING

PARTICIPATING OR NON-PARTICIPATING

CONVERTIBLE OR NON-CONVERTIBLE

CONVERTIBLE OR NON-CONVERTIBLE

REDEEMABLE OR IRREDEEMABLE

REDEEMABLE OR IRREDEEMABLE

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Such shares enjoy some preferential right: 1: As to the payment of dividend at a fixed rate during the life of the company. 2: As to the return of capital winding up of the company. If any share carry only one of above these two preferential rights, they will be treated as equity shares.

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They do not enjoy normal voting right like equity share holders, they are however entitled to vote in following two cases: When any resolution directly affecting their rights is to be passed. When the dividend due (whether declared or not) on their preference shares or part thereof has remain unpaid.

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Cumulative preference shares Non-cumulative preference shares Participating preference shares Non-participating preference shares Convertible preference shares Non-convertible preference shares Redeemable preference shares Irredeemable preference shares

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These shares carry the right to receive the whole of surplus profits after the preference shares, if any. Further, directors have the sole right of recommending dividends to such shares and as such they may not get any dividends in case the director choose so. Holders of equity shares are the actual owners of the company.

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They have voting rights in the meeting of the company. They have a control over the working of the company. Equity share holders are paid dividend after paying it to the preference share holders. The rate of dividend on these shares depends upon the profits of the company. They may be paid a higher rate of dividend or they may not get anything. These share holders take more risk as compared to preference share holders. Equity capital is paid after meeting all other claims including that of preference share holders. They take risk both regarding dividend and return of capital. Equity share capital can not be redeemed during the life time of the company. 11

•Advantage

•Disadvantage

•Equity shares do not create any obligation to pay a fixed rate of dividend.

•If only equity shares are issued the company can not take the advantages of trading on equity.

•Equity shares can be issued without creating •As equity capital can not be redeemed there any charge over the assets of the company. is a danger of overcapitalization. •It is a permanent source of capital and the company has not to repay it except under liquidation.

•Equity share holders can put obstacles in management by manipulation and organizing themselves.

•Equity share holders are the real owners of the company who have the voting rights.

•During prosperous periods higher dividends have to be paid leading to increase in value of shares in the market and speculation.

•In case of profits equity share holders are the real gainers by way of increased dividends and appreciation in the value of shares.

•Investors who desire to invest in safe securities with a fixed income have no attraction for such shares. 12

•Preference shares

•Equity shares

•These shares are entitled to a fixed rate of dividend.

•The rate of dividend on equity shares depends upon the amount of profit available and the funds requirements of the company for future expansion etc.

•Dividend on these shares is paid in preference to the equity shares.

•The dividend on equity shares is paid only after the preference dividend has been paid.

•Redeemable preference shares may be redeemed by the company.

•Equity shares can not be redeemed except under a scheme involving reduction of capital or buy back of its own shares.

•The voting rights of these shares are restricted.

•An equity share holder can vote on all matters affecting the company.

•The preference shares have preference to equity shares with regard to payment of capital on winding up. 13

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They are also known as “founder shares", since they are often held by the promoter of the company. They are issued as other ordinary shares and gets a fixed dividends just like preference shares. But they are the last to receive both as regards dividends and repayment of capital.

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Certain restriction on public companies regarding allotment of shares, may be discussed under the following heads: When no public offer is made When public offer was made

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Where a public company having a share capital does not offer shares to the public, it need not issue a prospectus. In such case it shall not proceed to allot shares unless at least three days before the first allotment it has filed with the registrar for registration a statement in lieu of prospectus.

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In case when public company offers shares to the public for subscription, the provisions relating to allotment may be studied under the following heads: First allotment of shares Subsequent allotment of shares

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public company can make the first allotment only after two years of the formation of the company, and should comply with certain restrictions:  Registration of the prospectus  Minimum subscription  Application money  Effect of irregular allotment  Shares to be dealt in on a stock exchange

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In case of subsequent allotment of shares Offered to the public for subscription by a public company, all the special provisions applicable to ‘first allotment of shares’ discussed above apply, except the provision relating to: Minimum subscription [sec, 69(1)], and Deposit of application money in a schedule bank

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Shares can be issued at par Shares can be issued at premium Shares can be issued at discount

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Every person whose name is entered as a member of a company has a right to receive a certificate of his share. A share certificate shall be under the seal of the company and shall specify: The shares to which it relates The amount paid up thereon The name, address, and occupation of the share holder. Should be signed by atleast 2 directors and secretary. 21

A share warrant is a document issued by a public company stating that its bearer is entitled to the shares specified therein. A public company limited by shares may convert its fully paid-up shares into share warrants. Advantage of issuing share warrants is that shares can be transferred by mere delivery of warrant.

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Issue Receipt / acknowledgement Use the prescribed format of covering letter bear a unique serial number Must affix date receipt stamp Shall return share certificates and transfer with prescribed time of one month

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Not impound certificates Dispatch after realization of the stock invest Ensure adequate security marks Signature difference - Original transfer deed - Original Certificate - Original objection memo with the reason

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